Suntec Real Estate Investment Trust’s Latest Earnings: Lower Revenue Seen, But Distribution Grows

Suntec Real Estate Investment Trust (SGX: T82U) released its fiscal third-quarter earnings (for the three months ended 30 September 2016) yesterday evening.

For a quick background, Suntec REIT is one of the largest REITs in Singapore and currently has interests in retail malls and offices in Singapore and Australia. Its portfolio, which is concentrated more toward Singapore, includes Suntec CityOne Raffles Quay, Park Mall and a commercial building in Australia, just to name a few.

You can read more about the REIT in here or catch up with the results from its last quarter in here.

Financial highlights

The following’s a rundown on some of Suntec REIT’s latest financial figures:

  1. Gross revenue came in at S$82.4 million in the reporting quarter, down 4.3% compared to the previous year.
  2. Net property income (NPI) also slipped by 2.1% to S$57.2 million during the same period. The decline can be attributed to the divestment of Park Mall and a lower contribution from Suntec Singapore, mitigated by the opening of Suntec City Mall (Phase 3) and contributions from 177 Pacific Highway.
  3. Income contribution from joint ventures (that would include partial interests in One Raffles Quay and Marina Bay Financial Centre Towers 1 and 2, and Park Mall) remained stable at S$24.2 million, up 0.6% from last year.
  4. Despite the lower gross revenue and net property income, the REIT’s distribution per unit (DPU) increased by 0.5% in the reporting quarter, from 2.522 Singapore cents a year ago to 2.535 Singapore cents.
  5. The REIT ended the quarter with a net asset value per unit of S$2.128, up by 1.7% from the S$2.091 seen a year ago.
  6. As of 30 September 2016, Suntec REIT’s aggregate leverage ratio stood at 37.8%, a slight increase from the 36.7% seen as of 30 September 2015. The interest coverage ratio had also declined from 4.2 times to 3.9 times over the same period. But, the REIT had managed to bring down its all-in financing cost from 2.74% to 2.28%.

Operational highlights

Suntec REIT splits its portfolio into the Office and Retail portions. The former maintained a strong occupancy rate of 99.3%; for perspective, the CBD (Central Business Distrcit) Grade A occupancy rate during the quarter was just 92.8%.

Meanwhile, Suntec REIT’s Retail portfolio ended the reporting quarter with an occupancy rate of 97.3% as well.

In the same quarter a year ago, Suntec REIT’s Office and Retail portfolios had occupancy rates of 98.9% and 96.5%, respectively.

In addition, the REIT had acquired a 25% interest in Southgate Complex in August this year. The property, which is strategically located along the Yarra River in Melbourne, Australia, is under development and is expected to be completed by December 2016. The new freehold building is a landmark waterfront development comprising two A-Grade office towers and a retail podium.

Valuation and future prospects

In the earnings release, Suntec REIT had commented on some broad economic trends that could affect its business. On the Singapore office market, the REIT had the following comment:

“The Singapore office market remained under pressure in the third quarter of 2016. Leasing activities were primarily from tenants seeking a flight to quality to new projects. For the quarter, the overall CBD rents declined by 1.9% to S$8.63 psf/mth while the overall CBD occupancy declined by 2.4% to 92.8%.”

That being said, Suntec REIT’s manager still expects “the performance of the office portfolio to remain stable.”

On the retail side of things, Suntec REIT said:

“The Singapore retail sector continued to face challenges in the third quarter of 2016. Driven by weak consumer sentiments, labour constraints and competition from E-commerce, tenants were hesitant in taking up space. To address this, landlords have introduced new retail concepts to provide shoppers with a novel reason to visit the malls.

Yeo See Kiat, the chief executive of Suntec REIT’s manager, highlighted some measures that Suntec REIT has taken to increase shopper traffic at its malls:

“Amidst the soft retail market, our strategy to drive shopper traffic to our mall by focusing on strengthening the tenancy mix has shown results as we welcome flagship shops and new-to-market concepts to Suntec City.

We have also strengthened the ecosystem and built stronger relationships with our stakeholders with the launch of new initiatives which provide value-added services to our office tenants, shoppers and conference delegates. Through Suntec Rewards, our new digital platform, we continue to drive customer loyalty with exclusive targeted tie-ups to engage members and encourage spending in Suntec City.”

Suntec REIT’s manager also “expects the retail contribution from Suntec City to remain stable.”

The REIT’s units closed at S$1.73 each on Thursday. This translates to a historical price-to-book ratio of 0.81 and a trailing distribution yield of 5.87%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.